Sunday, July 5, 2009

What Makes a Depression Great Pt. I: The Hoover Myth

I'm going to sideline my postings on economic fundamentals briefly, break up the monotony, and tackle some things that I think are increasingly important in the here and now. That subject is the Great Depression.

You might ask "Wait a minute, what does the Great Depression have to do with the here and now?" and my emphatic answer is "lots!" There is a lot going on in the economy today that ominously echoes events that preceded the 1929 stock market crash and the ensuing Great Depression and I feel it is important for us as citizens to understand what is going on and why--and present it in a format that does away with the partisan finger-pointing we are all so used to seeing and hearing day in and day out. You will soon realize that there is plenty of blame to go around both back then and today. But first we need to take out the big free market hammer and bust some myths.

You see the Bush/Obama dynamic we have been experiencing is in part reminiscent of the Herbert Hoover/Franklin Roosevelt one of the past. Hoover, then a Republican president during the disastrous stock market crash, was given the full brunt of the blame for the Great Depression and, in fact, he deserves some of this criticism but not for the reasons we think. History has painted a picture of Hoover as a do-nothing pro-capitalist who sat idly by and watched the American economy flounder like a dying fish in the bottom of a fishing boat but actual facts show us otherwise. Like George W. Bush, Hoover having a big fat "R" next to his name was no indicator of his fiscal principles and he certainly didn't act in the interest of free market economics or fiscal conservatism. In fact, nothing could be further from the truth.

Herbert Hoover loved big government, tax hikes and heavy-handed policy on the markets. What he started was then magnified by big spender Roosevelt, much like what was started by Bush has been snowballed by President Obama. The irony, of course, was that Roosevelt used Hoover's policies of deficit spending against him during the 1932 presidential race by pointing out that Hoover had run more peacetime deficits than any president before him.

Here is a small smattering of Hoover's sins: he steeply raised income taxes during an economic downturn, he propped up wages artificially which led to staggering unemployment, he imposed massive tax hikes on imported goods which hamstrung the availability of raw materials, he spent more than twice what tax revenues were bringing in, and he ushered in policies that would prove to be the seeds of the New Deal that FDR would soon bring in to deepen and lengthen the depression. In fact, we as a country very likely would have been better off if we had Hoover the vacuum cleaner sitting in the Oval Office.

So sure, you can blame Hoover for helping to cause a run-of-the-mill economic downturn to balloon into the single most devastating depression in American history but it's for none of the reasons the partisan left has fabricated (and made all the easier by simply pointing out his party designation and hoping that's all that needs to be said). As we can see just by this short summary, Republicans aren't free of blame (as much as they'd like to make that claim) but it is often because the fundamental fiscal ideologies that they claim as their stance are all but abandoned. As we will discuss over the next few entries, politics and economics are rarely good bedfellows regardless of the letter next to a politician's name. This punctuates all the more that the economy's best friend is the political party that doesn't interact with it in the first place.

So perhaps voting for a vacuum cleaner in 1928 would have been the safer bet for the American economy but make no mistake, regardless of his political affiliations, Herbert Hoover still sucked.